92160 Doing Business 2015 Vietnam Economy Profile 2015 Vietnam Doing Business 2015 Vietnam 2 © 2014 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org All rights reserved. 1 2 3 4 17 16 15 14 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2015 Vietnam 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 25 Getting electricity ....................................................................................................................... 33 Registering property .................................................................................................................. 39 Getting credit .............................................................................................................................. 46 Protecting minority investors ................................................................................................... 53 Paying taxes ................................................................................................................................ 62 Trading across borders .............................................................................................................. 67 Enforcing contracts .................................................................................................................... 72 Resolving insolvency .................................................................................................................. 78 Labor market regulation ........................................................................................................... 81 Distance to frontier and ease of doing business ranking ...................................................... 88 Resources on the Doing Business website .............................................................................. 91 Doing Business 2015 Vietnam 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Vietnam. To allow useful comparison, it information on ordering Doing Business 2015, are also provides data for other selected economies available on the Doing Business website at (comparator economies) for each indicator. The data in http://www.doingbusiness.org. this report are current as of June Doing Business 2015 Vietnam 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 Vietnam 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: East Asia & Pacific based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: Lower middle income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. This Population: 89,708,900 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 1,730 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 78 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 72* distance to the best performance in each Doing Business Change in rank: -6 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 64.4 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 64.1 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: 0.3 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 Vietnam THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2015 Vietnam THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Vietnam and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Vietnam 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Vietnam (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Vietnam (Scale: Score 0 center, Score 100 outer edge) Note: The rankings are benchmarked to June 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2015 Vietnam 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Vietnam come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 Vietnam 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Vietnam Best performer globally Philippines DB2015 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Vietnam DB2015 Vietnam DB2014 Lao PDR DB2015 Indicator China DB2015 DB2015 Starting a Business 125 120 128 155 154 13 161 75 New Zealand (1) (rank) Starting a Business (DTF 77.68 77.39 77.43 68.84 68.95 94.90 67.23 87.98 New Zealand (99.96) Score) Procedures (number) 10.0 10.0 11.0 10.0 6.0 3.0 16.0 4.0 New Zealand (1.0)* Time (days) 34.0 34.0 31.4 52.5 92.0 5.5 34.0 27.5 New Zealand (0.5) Cost (% of income per 5.3 7.7 0.9 21.1 5.7 7.2 16.6 6.6 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 35.5 0.0 0.0 3.6 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 22 23 179 153 107 28 124 6 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 83.66 83.58 43.75 59.03 68.50 82.49 66.08 88.77 China (95.53) (DTF Score) Doing Business 2015 Vietnam 12 Best performer globally Philippines DB2015 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Vietnam DB2015 Vietnam DB2014 Lao PDR DB2015 Indicator China DB2015 DB2015 Hong Kong SAR, Procedures (number) 10.0 10.0 22.0 17.0 22.0 13.0 24.0 7.0 China (5.0) Time (days) 114.0 114.0 244.3 211.0 107.0 74.0 94.0 113.0 Singapore (26.0) Cost (% of warehouse 0.7 0.8 7.6 4.3 0.6 1.3 1.2 0.1 Qatar (0.0)* value) Getting Electricity 135 135 124 78 128 27 16 12 Korea, Rep. (1) (rank) Getting Electricity (DTF 63.38 62.17 66.35 76.90 65.29 86.67 90.59 91.71 Korea, Rep. (99.83) Score) Procedures (number) 6.0 6.0 5.5 5.0 5.0 5.0 4.0 4.0 12 Economies (3.0)* Time (days) 115.0 115.0 143.2 90.7 134.0 32.0 42.0 35.0 Korea, Rep. (18.0)* Cost (% of income per 1,432.8 1,726.4 459.4 353.6 1,650.4 46.3 90.6 66.1 Japan (0.0) capita) Registering Property 33 34 37 117 77 75 108 28 Georgia (1) (rank) Registering Property 81.44 81.43 80.67 60.74 71.06 71.16 62.81 83.04 Georgia (99.88) (DTF Score) Procedures (number) 4.0 4.0 4.0 5.0 5.0 8.0 9.0 2.0 4 Economies (1.0)* Time (days) 57.0 57.0 19.4 27.4 98.0 13.5 35.0 2.0 3 Economies (1.0)* Cost (% of property 0.6 0.6 3.6 10.8 1.1 3.3 4.3 6.3 4 Economies (0.0)* value) Getting Credit (rank) 36 30 71 71 116 23 104 89 New Zealand (1) Getting Credit (DTF 65.00 65.00 50.00 50.00 35.00 70.00 40.00 45.00 New Zealand (100) Score) Strength of legal rights 7 7 4 4 7 7 3 3 3 Economies (12)* index (0-12) Doing Business 2015 Vietnam 13 Best performer globally Philippines DB2015 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Vietnam DB2015 Vietnam DB2014 Lao PDR DB2015 Indicator China DB2015 DB2015 Depth of credit 6 6 6 6 0 7 5 6 23 Economies (8)* information index (0-8) Credit registry coverage 41.8 39.1 33.2 46.4 3.5 56.2 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 1.4 0.0 0.0 0.0 0.0 78.6 11.3 52.7 23 Economies (100.0)* (% of adults) Protecting Minority 117 115 132 43 178 5 154 25 New Zealand (1) Investors (rank) Protecting Minority 46.67 46.67 45.00 60.83 29.17 74.17 41.67 65.83 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 3.7 3.7 5.0 6.0 3.3 8.7 4.0 7.7 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.7 5.7 4.0 6.2 2.5 6.2 4.3 5.5 France (7.8)* 10) Strength of minority investor protection 4.7 4.7 4.5 6.1 2.9 7.4 4.2 6.6 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 173 171 120 160 129 32 127 62 (1)* Paying Taxes (DTF United Arab Emirates 43.61 43.61 67.44 53.66 66.10 83.95 66.46 77.99 Score) (99.44)* Payments (number per Hong Kong SAR, 32.0 32.0 7.0 65.0 35.0 13.0 36.0 22.0 year) China (3.0)* Time (hours per year) 872.0 872.0 261.0 253.5 362.0 133.0 193.0 264.0 Luxembourg (55.0) Trading Across Borders 75 74 98 62 156 11 65 36 Singapore (1) (rank) Trading Across Borders 75.56 75.37 71.68 77.46 52.96 89.94 77.23 83.57 Singapore (96.47) Doing Business 2015 Vietnam 14 Best performer globally Philippines DB2015 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Vietnam DB2015 Vietnam DB2014 Lao PDR DB2015 Indicator China DB2015 DB2015 (DTF Score) Documents to export 5 5 8 4 10 4 6 5 Ireland (2)* (number) Time to export (days) 21.0 21.0 21.0 17.0 23.0 11.0 15.0 14.0 5 Economies (6.0)* Cost to export (US$ per 610.0 610.0 823.0 571.8 1,950.0 525.0 755.0 595.0 Timor-Leste (410.0) container) Cost to export (deflated 610.0 639.0 823.0 571.8 1,950.0 525.0 755.0 595.0 US$ per container) Documents to import 8 8 5 8 10 4 7 5 Ireland (2)* (number) Time to import (days) 21.0 21.0 24.0 26.0 26.0 8.0 15.0 13.0 Singapore (4.0) Cost to import (US$ per 600.0 600.0 800.0 646.8 1,910.0 560.0 915.0 760.0 Singapore (440.0) container) Cost to import (deflated 600.0 628.6 800.0 646.8 1,910.0 560.0 915.0 760.0 US$ per container) Enforcing Contracts 47 47 35 172 99 29 124 25 Singapore (1) (rank) Enforcing Contracts 65.89 65.89 68.21 37.28 57.49 69.39 52.02 70.05 Singapore (89.54) (DTF Score) Time (days) 400.0 400.0 452.8 471.0 443.0 425.0 842.0 440.0 Singapore (150.0) Cost (% of claim) 29.0 29.0 16.2 115.7 31.6 37.3 31.0 15.0 Iceland (9.0) Procedures (number) 36.0 36.0 37.0 40.0 42.0 29.0 37.0 36.0 Singapore (21.0)* Resolving Insolvency 104 104 53 75 189 36 50 45 Finland (1) (rank) Resolving Insolvency 41.27 39.97 55.31 46.75 0.00 65.61 56.74 58.73 Finland (93.85) (DTF Score) Doing Business 2015 Vietnam 15 Best performer globally Philippines DB2015 Indonesia DB2015 Malaysia DB2015 Thailand DB2015 Vietnam DB2015 Vietnam DB2014 Lao PDR DB2015 Indicator China DB2015 DB2015 no Time (years) 5.0 1.7 1.9 1.0 2.7 2.7 Ireland (0.4) practice no Cost (% of estate) 14.5 14.5 22.0 21.6 10.0 32.0 36.0 Norway (1.0) practice Outcome (0 as no piecemeal sale and 1 as 0 0 0 0 1 0 1 practice going concern) Recovery rate (cents on 18.6 16.2 36.0 31.7 0.0 81.3 21.2 42.3 Japan (92.9) the dollar) Strength of insolvency no 10.0 10.0 11.5 9.5 7.0 14.5 11.5 5 Economies (15.0)* framework index (0-16) practice Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of s uch factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” or “not possible” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2015 Vietnam 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Vietnam 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Vietnam? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 10.0 procedures, takes 34.0 days, average of the 2 largest business cities. See the chapter costs 5.3% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.0% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Vietnam - Paid-in minimum capital (% of income per capita): 0.0 Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Vietnam 18 STARTING A BUSINESS Globally, Vietnam stands at 125 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Vietnam The rankings for comparator economies and the regional to start a business. Figure 2.2 How Vietnam and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2015 Vietnam 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in Vietnam (table 2.1)? Table 2.1 How has Vietnam made starting a business easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Vietnam eased company start-up by creating a one-stop shop that combines the processes for obtaining a business license DB2011 and tax license and by eliminating the need for a seal for company licensing. Vietnam made starting a business easier by allowing DB2013 companies to use self-printed value added tax invoices. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Vietnam 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Vietnam is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: cong ty trach nhiem huu han - firm. These are identified by Doing Business through Private Limited Liability Company collaboration with relevant local professionals and the study of laws, regulations and publicly available Paid in minimum capital requirement: VND 0 information on business entry in that economy. City: Ho Chi Minh City Following is a detailed summary of those procedures, along with the associated time and cost. These Start-up Capital: 10 times GNI per capita procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Vietnam - Time to No. Procedure Cost to complete complete Check the proposed company name; obtain a business registration certificate as well as a tax registration certificate from the local business registration office under the Department of Planning and Investment The applicant has to submit documents in accordance with Government Decree 43/2010/ND-CP (15 April 2010) on enterprise registration, as amended by Government Decree 05/2013/ND-CP (9 January 2013) ("Decree 43"). Pursuant to Article 26 of Decree 43, when the application file for enterprise registration fully satisfies the conditions for issuance of an enterprise registration certificate, information about that file shall be transferred to the database of the Department General of Taxation VND 200,000 1 (Ministry of Finance). The Department General of Taxation is 14 days (official fees) responsible, within two working days from the date of receipt of information from the national database of information, to create an enterprise code number and to transfer it to that national database in order for the provincial business registration office to issue it to the enterprise. Each enterprise is issued one unique enterprise code number. This code number is both the business registration code number and the tax code number of that enterprise (Article 8 of Decree 43). Agency: Department of Planning & Investment Doing Business 2015 Vietnam 21 Time to No. Procedure Cost to complete complete Make a company seal The company obtains a company seal from a seal maker. VND 165,000 - VND 2 8 days 370,000 for bronze Agency: Sealmaker seal Registration of the seal-sample at the Police Department Most business transaction documents must be signed and stamped before they are considered valid and legal. Pursuant to Circular No. 193/2010/TT-BTC of the Ministry of Finance dated December 2, 2010, the fee to register the seal-sample is VND 50,000. The seal will be 3 registered by the police division. The representative has to lodge a copy 1 day VND 50,000 of the Business and Tax Registration Certificate and also present his or her identity card. Agency: Local Police Office Open a bank account Each bank requires a different minimum deposit to open an account. For instance, whereas Vietcombank requires the fixed amount of VND 1 million for an account in VND and USD 300 for one in USD, Asian Commercial Bank requires VND 1 million for a VND account and US 100 for a USD account. To open the account, the bank requires a bank- 1 day no charge 4 issued application form, the company seal, the company’s business registration certificate, and the resolution of the management board on the authorized signatures. Agency: Bank Publish the registration contents on the National Business Registration Portal (NBRP) According to the Decree No. 05/2013/NĐ-CP dated 09/01/2013, within 30 working days since the date of the establishment or the amendment registration, enterprises shall post their registration contents on the National Business Registration Portal (NBRP) as stipulated in the Article 28 of the Enterprise Law and pay the fee for publishing the business registration information. 5 days VND 300,000 5 The fee for publishing the registration contents on the National Business Registration Portal is VND 300,000 according to the Circular No. 106/2013/TT-BTC of the Ministry of Finance dated August 9, 2013. This Circular takes effect on October 01, 2013. Agency: National Business Registration Portal (NBRP) Doing Business 2015 Vietnam 22 Time to No. Procedure Cost to complete complete * Pay business license tax The business license tax is paid to the tax authority where the enterprise registers its tax reports or through designated commercial banks. Such business license tax is paid annually and in the first month of a year (with regards to enterprises are operating) and in the month when the 1 day, VND 1,000,000 newly established enterprise obtains the tax registration certificate and simultaneous with (business license 6 tax code. The new company established during the first 6 months of the previous tax) year shall pay the entire annual business license tax, if established procedure during the last 6 months, then pay 50% of annual license tax. Agency: Tax office or commercial bank * Buy pre-printed VAT invoices from the Municipal Taxation Department or obtain and print self-printed VAT invoices All companies shall use their shelf-printed VAT invoices from 1 January 2011 according to Decree No.153/2010/ND-CP and its guidelines (if any), therefore, the Company must contact with the publisher to order the print of its VAT Invoice Books for its demand and must implement the legal procedure on registration and circulation of shelf-printed VAT Invoices with the Municipal Taxation Department. To register for self-printing of invoices, company founders must submit an application on a standard form, along with (a) a sample self-printed invoice, including all statutory details; (b) a map showing the location of the company’s office or copy of the lease contract if the premises are leased, certified by the ward commune people’s committee; (c) the general director’s identification card; (d) a copy of the business registration certificate; and (e) and the tax registration certificate and copy. According to Ministry of Finance Circular 64/2013/TT-BTC (May 15, 10 days, 2013) which amending Ministry of Finance Circular 153/2010/TT-BTC simultaneous with about VND 200,000 7 (28 September 2010), a company can self-print the VAT invoices if it has previous per book incurred a total tax penalty amount of less than 50 million Vietnamese procedure dong within 365 consecutive days before the first self-print. The company shall prepare an announcement of self- issuance of invoice and send it to the relevant tax authority of where the company has its head office, within 10 business days from the date of signing the announcement and 5 business days at the latest before the date on which the invoice is in use, and the announcement must immediately be listed at all establishments using such invoice to sell goods and services during the entire period of such use (Article 11 of Decree 51 and Article 9.4 of Circular 153/2010/TT-BTC guiding the implementation of Decree 51). In total, it may take about 10 days to get the printed VAT invoices and register them with the Municipal Taxation Department. Agency: Municipal Taxation Department Doing Business 2015 Vietnam 23 Time to No. Procedure Cost to complete complete * Register with the local labor office to declare use of labor (Municipal Department for Labor, Invalids and Social Affairs). Within 30 days of starting operations, the employer must register all employees and their qualifications with the Labor Office (in conformity 1 day, with set forms). The relationship between the employer and its simultaneous with 8 no charge employees are regulated by the Labor Code and set forth in labor previous contracts. procedure Agency: Municipal Department for Labor * Register employees with the Social Insurance Fund for the payment of health insurance and social insurance. The company must register with the Social Insurance Fund all employees who have contracts for 3 months or longer. The employer must complete a form provided by the Hanoi Social Insurance and include the following information: the employee name and date of birth, salary (as stated in the labor contract), the social insurance book serial number (for employees already issued with those books), a certified copy of the company's business registration certificate, and a copy of each labor contract. 1 day, simultaneous with 9 The Social Insurance Office must, within 30 days from the date of no charge previous receipt of the application file, issue an insurance registration book for procedure each new employee that was not issued such book by the previous employer. The employer is responsible for paying social and health insurance contributions for each employee. Since the health insurance merged with the social insurance funds, payment is made (monthly or quarterly) directly to the Social Insurance Fund. Health insurance certificates are issued during the first month of the year. Agency: Social Insurance Fund * Register for trade union with Vietnam General Confederation of Labor The employer must register with the local trade union or industry trade union (as defined below) no later than 6 months from the date it starts operations. 7 days, The term “trade union” includes (a) provincial or municipal-level simultaneous with 10 no charge confederations of labor under the Vietnam General Confederation of previous Labor; (b) central-level industry trade unions; (c) trade unions of procedure corporations under the Vietnam General Confederation of Labor; (d) confederations of labor of districts, towns, and provincial cities; (e) local-level industry trade unions, (f) trade unions of processing zones, industrial zones, and high-tech zones; (f) trade unions of corporations; and (g) superior trade unions of other establishments. These trade unions are responsible for establishing a trade union for the company, Doing Business 2015 Vietnam 24 Time to No. Procedure Cost to complete complete according to the provisions of the Labor Code, the Law on Trade Unions, and the Charter of the Trade Union of Vietnam, to represent and protect the lawful and legitimate rights and interests of the employees and the labor collective. If a company trade union is not established within 6 months, the superior trade union shall appoint a provisional executive committee of the trade union to represent and protect the lawful and legitimate rights and interests of the employees and the labor collective. This mandate is provided for by the Labor Code, the Law on Trade Unions, and the Charter of the Trade Union of Vietnam. The term of the provisional executive committee of the trade union and the extension of that term is subject to the regulations of the Vietnam General Confederation of Labor. Agency: Confederation of Labour * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Vietnam 25 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Vietnam 26 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Vietnam? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 10.0 procedures, takes 114.0 days and costs and ease of doing business ranking at the end of this 0.7% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Vietnam - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Vietnam 27 DEALING WITH CONSTRUCTION PERMITS Globally, Vietnam stands at 22 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Vietnam to legally build a warehouse. Figure 3.2 How Vietnam and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2015 Vietnam 28 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Vietnam (table 3.1)? Table 3.1 How has Vietnam made dealing with construction permits easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Vietnam made dealing with construction permits easier by reducing the cost to register newly completed buildings by DB2011 50% and transferring the authority to register buildings from local authorities to the Department of National Resources and Environment. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Vietnam 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Vietnam are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated cost of information collected from experts in construction VND 1,898,404,942 construction : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Ho Chi Minh City service providers and public officials who deal with building regulations. These procedures are those The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Vietnam - Time to No. Procedure Cost to complete complete Obtain the certification of the designs from the Police Department for Fire Fighting and Fire Prevention of Ho Chi Minh City According to Decree No. 35/2003/ND-CP dated 04/04/2004 of the Government and Decree No. 46/2012/ND-CP dated 05/22/2012 of the Government on amending and supplementing some provisions of the government's Decree No. 35/2003/ND-CP dated 04/04/2003 implementing certain articles of the Law on Fire Prevention and Fire Fighting and the Government's Decree No. 130/2006/ND-CP dated 30 days no charge 1 08/11/2006 on the compulsory fire and explosion insurance regime, all new commercial buildings must obtain a certification of their designs by the Police Department for Fire Fighting and Fire Prevention. The certification is required for the construction permit application. Agency: Police Department for Fire Fighting and Fire Prevention of Ho Chi Minh City Request and obtain construction permit from the (District) Department of Construction of Ho Chi Minh City The decision to grant a construction permit is made by the Chairman of the People’s Committee, at the provincial level, and the Director of the Department of Construction. The following documents are required: a) Application for issuance of building permit (standard form) b) Notarized or certified copy of one of the papers on the land use 2 right in accordance with the Law on Land. Land is national property in 30 days VND 100,000 Vietnam. Only a business can be the holder of the land-use right. It is assumed that the BuildCo already holds the land-use certificate. c) Two sets of design drawings, each of which includes: - Drawing of the works position on the land lot with a scale of 1/100 - 1/500, together with the outline of works position; - Drawing of surface, main elevation and section of the works with a scale of 1/50 - 1/200; - Drawing of foundation with a scale of 1/100 - 1/200 and foundation Doing Business 2015 Vietnam 30 Time to No. Procedure Cost to complete complete section of 1/50, together with the connection diagram to the system of transportation infrastructure, water supply, wastewater and rainwater drainage, wastewater treatment, electricity supply, communications and other technical infrastructure related to the project with a scale of 1/50 - 1/200. If deemed necessary, the Department of Construction consults any of the following related offices: • Office of the Chief Architect • Office for Land Planning • Office for Land Management • Department of Culture • Department of Health • Department of Natural Resources and Environment • Fire Protection Office • Department of Public Traffic and Transportation • Local National Defense Office Each consultation separately takes 10 days. However, under Article 9.6 of Decree 64/2012/ND-CP of the Government dated 4 September 2009, The Department of Construction has 20 working days from the date of receiving the completed file to issue or deny the construction permit. In practice, this time limit is seldom met. The application form can be obtained at the local department of construction. It is currently required for a construction company to go to the office and obtain the form. After obtaining a construction permit, within a time limit of 7 working days prior to the date of commencement of construction of the warehouse, BuildCo is required to provide written notification of the commencement date to the People's Committee at the district level where the warehouse is located (according to Article 68.2 (a) of the Law on Construction No. 16/2003/QH11, dated November 16, 2003). Agency: Department of Construction of Ho Chi Minh City (Municipality) Notify the Department of Construction about the commencement of construction and receive inspection This inspection and the following ones are not stipulated by specific regulations. However, because the authority is mandated to supervise 1 day no charge 3 the inspections, these do take place in practice. Agency: Department of Construction of Ho Chi Minh City (Municipality) Request and receive inspection from the municipality after completion of foundation works The company must notify the Department of Construction at the different stages of construction and suspend construction until the 3 days no charge 4 department visits the site 3 days after the notification. Agency: Department of Construction of Ho Chi Minh City (Municipality) Doing Business 2015 Vietnam 31 Time to No. Procedure Cost to complete complete Request and receive inspection from the municipality upon completion of building surroundings The company must notify the Department of Construction at the different stages of construction and suspend construction until the 3 days no charge 5 department visits the site 3 days after the notification. Agency: Department of Construction of Ho Chi Minh City (Municipality) Request water and sewage connection Different areas in Ho Chi Minh City are covered by different public water companies. Therefore, BuildCo is required to contact the relevant water company and submit the following documents: • The application form (available at the water company) • A notarized copy of the business registration certificate of BuildCo • A certified copy of the land use right certificate or the construction permit 6 1 day VND 4,000,000 The costs of obtaining water/sewage connection depend on the usage capacity of the warehouse, as well as on its exact location in relation to the main water lines. The standard water meters cost approximately VND 1.5 million. Agency: Ho Chi Minh City Water Supply Company Receive inspection by water company 7 1 day no charge Agency: Ho Chi Minh City Water Supply Company Connect to water and sewage services 8 14 days no charge Agency: Ho Chi Minh City Water Supply Company Notify and receive inspection from the municipality after completion of building At the end of construction, the Department of Construction visits the site to confirm that the building was built according to the master 9 plans, rules, and regulations. BuildCo must provide written notification 1 day no charge of the completion of construction. Agency: Department of Construction of Ho Chi Minh City (Municipality) Doing Business 2015 Vietnam 32 Time to No. Procedure Cost to complete complete Register the building at the Department of National Resources and Environment The cost for registering ownership of the warehouse should include an administrative fee of VND 350,000.00 (based on Decision 98/2009/QD- UBND of the People's Committee of Ho Chi Minh City of 22 December 2009) and a registration fee of 0.5% of the warehouse value (based on Decree 45/2011/ND-CP of the Government dated 17 June 2011). For the registration fee, the value of the construction contract signed between BuildCo and the construction contractor will be taken as the warehouse value, provided that it is higher than the minimum value calculated by the Tax Department based on the minimum unit price as provided for by the People’s Committee of Ho Chi Minh City. The application file should be submitted to the Department of Construction of Ho Chi Minh City. According to Decree 88/2009/ND-CP 30 days VND 9,842,025 10 (dated 19 October 2009), On Issuance of Certificates of Land Use Rights, Ownership of Residential Houses and Construction Works, the work carried out by the Department of Construction may take 55 working days, including time for taking measurements or checking the measurements of the construction works, if any; reviewing the application file; submitting the file for approval and signature; and notifying the applicant to make payment of financial obligations (e.g., payment of the registration fee at Tax Department). Decree 88 also states that the applicant must pay all financial obligations within 60 working days from the date of receipt of the notification from the Department of Construction. Agency: Department of National Resources and Environment * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Vietnam 33 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity a customer is always to gain access by obtaining a connection (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Vietnam 34 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Vietnam? According to data collected by Doing business city of an economy, except for 11 economies for Business, getting electricity there requires 6.0 procedures, which the data are a population-weighted average of the takes 115.0 days and costs 1432.8% of income per capita 2 largest business cities. See the chapter on distance to (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in Vietnam - Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Vietnam 35 GETTING ELECTRICITY Globally, Vietnam stands at 135 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Vietnam to connect The rankings for comparator economies and the regional a warehouse to electricity. Figure 4.2 How Vietnam and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2015 Vietnam 36 GETTING ELECTRICITY What are the details? The indicators reported here for Vietnam are based on a OBTAINING AN ELECTRICITY CONNECTION set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Ho Chi Minh City Power Name of utility: identified by Doing Business. Data are collected from the Company distribution utility, then completed and verified by electricity regulatory agencies and independent City: Ho Chi Minh City professionals such as electrical engineers, electrical The procedures are those that apply to a warehouse and contractors and construction companies. The electricity electricity connection matching the standard distribution utility surveyed is the one serving the area assumptions used by Doing Business in collecting the (or areas) in which warehouses are located. If there is a data (see the section in this chapter on what the choice of distribution utilities, the one serving the largest indicators cover). The procedures, along with the number of customers is selected. associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in Vietnam - Time to No. Procedure Cost to complete complete The customer applies for electricity connection and awaits clearance from Ho Chi Minh City Power Corporation (EVN HCMC) Along with the application, the following documents are needed for requesting electricity connection: A. Request document for power supply or official dispatch sent to Distribution Department under regulation at Clause 5 of this process attached by breakdown of equipment, regulations, and capacities. For the purposes of manufacturing and business, a service having a maximum capacity of over 80kW or a transformer with a capacity beyond 100kVA, a copy of the load schedule and technical specification of the equipment must also be submitted. 1 30 calendar days VND 0 B. There are also the following 2 categories of documents (notarized copies): B.1 The first category is related to the construction location: • Ownership certificate; • Certificate of land-using right; • House-hiring Contract confirmed by authorized organization; • Land-hiring Contract confirmed by authorized organization; and • Decision of handling over house or land of Authorized organization. In case these documents are not available, one can submit a Confirmation Paper from the authorized organization or local administration when requesting power supply (not adhering to this Clause in the case of a specific construction is investigated by the utility). B.2 The other category of documents is related to the client: Doing Business 2015 Vietnam 37 Time to No. Procedure Cost to complete complete • Business registration Certificate or Certificate of registration of branch, representative office; • Investment license; and • Decision of unit foundation. After the utility has received the application, it inspects the site to determine the specifics of the connection. No estimate of connection fees is prepared. However, the client needs to await approval (clearance) of Ho Chi Minh City Power Corporation (EVNHCMC) on the requested power. Agency: Ho Chi Minh City Power Corporation (EVN HCMC) * The customer obtains external inspection from Ho Chi Minh City Power Corporation (EVN HCMC) The utility inspects the client's site to determine the specifics of the 2 connection. 1 calendar day VND 0 Agency: Ho Chi Minh City Power Corporation (EVN HCMC) The customer has to obtain design approval and excavation permit for the underground connection at the Traffic and Transport Department The customer has to obtain an excavation permit for the underground connection at the Traffic and Transport Department. Also, based on Decree No. 15/2013/NĐ-CP dated February 06, 2013 of the Government 15 calendar days VND 0 3 on work quality management, the customer must also receive approval of their design as well as comments on the suitability of the local power grid development plan. Agency: Traffic and Transport Department The customer hires a private firm for the design and carrying out of the external works The customer can either ask the Distribution Department of EVN HCMC to do the works for them or hire a private firm for that. The more common approach is to hire an outside firm. 4 If more than 100 kVA is needed, a substation must be built. In the case 63 calendar days VND 544,000,000 where the customer chooses to hire an outside agency to carry out the works, the electricity company must first approve the designs. A contract is signed after both parties have agreed on the capacity, construction schedule, construction border, etc. There is no inspection of the entire internal wiring , and any electrician can carry out the internal installation. To ensure liability, the customer could hire a licensed Doing Business 2015 Vietnam 38 Time to No. Procedure Cost to complete complete electrical construction company. Agency: Electrical Contractor * The customer obtains certification of the design of the substation from Fire Fighters prevention Department For any sub-station with a transformer of at least 110 Kva, the Fire- fighters prevention Department has to give an approval/certification of 5 the designs. This is required by regulation NGHỊ ÐỊNH SỐ 35/2003/NÐ- 30 calendar days VND 0 CP NGÀY 04 - 4 - 2003 CỦA CHÍNH PHỦ of 2003. Agency: Fire Fighters prevention Department The customer obtains meter installation and final connection from Ho Chi Minh City Power Corporation (EVN HCMC) When the external works have been completed, the customer requests 6 meter installation from the Distribution Department of the utility. 7 calendar days VND 0 Agency: Ho Chi Minh City Power Corporation (EVN HCMC) * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Vietnam 39 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Vietnam 40 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Vietnam? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 4.0 procedures, takes which the data are a population-weighted average of the 57.0 days and costs 0.6% of the property value (figure 2 largest business cities. See the chapter on distance to 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Vietnam - Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2015 Vietnam 41 REGISTERING PROPERTY Globally, Vietnam stands at 33 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Vietnam to transfer property. Figure 5.2 How Vietnam and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2015 Vietnam 42 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: VND 1,898,404,942 notaries and property registries. These procedures are those that apply to a transaction matching the City: Ho Chi Minh City standard assumptions used by Doing Business in collecting the data (see the section in this chapter on The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Vietnam Time to No. Procedure Cost to complete complete Build an application for the transfer of land use rights and ownership of assets attached to the land Parties buy a land use right transfer contract (standard form). The dossier includes: Land-use right (LUR) certificate, Decision or Resolution of the highest decision-making body of the company regarding the LUR 1 day VND 4,000 1 transfer, and company's legal status documents. Agency: Land Department of Department of the Environment and Natural Resources The transferor and transferee will sign the contract which will be witnessed and certified by a notary located in the same area as the property The land use right transfer contract shall be made in duplicate, one for the seller and another for the buyer. The Contract for Transfer of Property must be notarized by the public notary where the land is located (based on Decree 181/2004/ND-CP Guiding the Implementation of the Land Law (Government, October 29, 2004, as amended on VND 1 million + January 27, 2006) , Art. 119.1.b). The dossier for the public notary office 0.06% of the 2 includes: • Request for notarization of the contract or transaction on the 2-10 days amount exceeding standard form; • Property transfer contract; • Document evidencing VND 1 billion transferor’s title to the land and warehouse (e.g., land use right certificate for the 557.4 square meters land and construction works ownership registration certificate for the warehouse or certificate of land use right and assets attached to the land for both land and warehouse; • business registration certificate of the transferor and transferee; • the transferor's corporate approval on transfer of property to the transferee; • power of attorney granted by the legal representatives of the transferor and transferee if the signatory is not legal representative of the transferor and transferee; and • ID card of the signatory (including the legal Doing Business 2015 Vietnam 43 Time to No. Procedure Cost to complete complete representative and authorized person, if any) (Joint Circular No. 04/2006/TTLT-BTP-BTNMT dated June 13, 2006 of the Ministry of Justice and the Ministry of Natural Resource and Environment). • Copies of other documents relevant to the contract or transaction which the law stipulates must be available (Article 35 of Law No. 82-2006-QH11 on Notarization, effective as of 1 July 2007) The time-limit for notarization shall not exceed 2 working days in the case of a complex contract or transaction, this time-limit may be extended but not beyond 10 working days (Article 38 Law on Notarization No. 82/2006/QH11 takes effect in 1/7/2007). If the value of property or contract between VND 1.000,000,000 and VND 3.000,000,000 notary fee is VND 1.000,000+0,06 % of the amount of the value of property or value of the contract/transaction exceeding 1.000,000,000 . (Joint Circular No. 08/2012/TTLT-BTC-BTP dated January 19, 2012 of the Ministry of Finance and the Ministry of Justice on rates, collection, payment, management and use of notary fees ("Circular 08"), effective from March 15, 2012 which replaces Joint Circular No. 92/2008/TTLT-BTC-BTP dated October 17, 2008 of the Ministry of Finance and the Ministry of Justice ("Circular 91") Agency: Notary Public The parties pay income tax on assignment of the land-use right and The registration the registration fee at the relevant District Department of Taxation fee (paid by the transferee) is 0,5% The registratiom fee (paid by the transferee) is 0.5% (Decree (Circular 45/2011/ND-CP and Circular 124/2011/TT-BTC on registration fee) . 1. 79/2008/TT- BTC Corporate Income Tax (CIT): Decree 218 of the Government has replaced dated 15/9/2008 Decree 124 (and its amendments) and accordingly, the CIT rate replaced Item II applicable to the transfer of a property reduces from 25% to 22%. Registration Fee: From June 1, 2011, there are certain reforms related to Section II Circular registration fees as follow: (1) Decree No. 45/2011/ND-CP dated June 17, 95/2005/TT- BTC 2011 of the Government guiding on registration fees which replaced guiding on Decree No. 176/1999/ND-CP dated December 21, 1999 of the registration fee). Government as amended by Decree No. 80/2008/ND-CP dated July 29, The tax rate of the 2008 of the Government; and (2) Circular No. 124/2011/TT-BTC dated 25-30 days income tax from 3 August 31, 2011 of the Ministry of Finance guiding on registration fees the assigment of replaced Circular 68/2010/TT-BTC dated April 26, 2010 of the Ministry of land use right Finance which abolished Circular 79/2008/TT-BTC and Circular (paid by the 95/2005/TT-BTC of the Ministry of Finance. transferor) is 22% based on Article The transferee is required to declare and pay in full the registration fees 11.2, Decree No. when registering its ownership and rights to use of the property with the competent authority of Vietnam (e.g., application for a LUR certificate 218/2013/NĐ-CP with respect to the 557.4 square meters land and the warehouse with the dated December LUR Office) (Article 3 of Decree No. 45/2011/ND-CP dated June 17, 2011 26, 2013 of the of the Government and Article 2 of Circular No. 124/2011/TT-BTC dated Government August 31, 2011 of the Ministry of Finance), instead of the 30-day period guiding the as provided previously in Decree 176. implementation of the Law on Doing Business 2015 Vietnam 44 Time to No. Procedure Cost to complete complete Corporate Income Tax ("Decree 218")). The Agency: District Department of Taxation transferor is required to declare the corporate income tax for each time of transfering property (Article 12.5.b of Circular No. 156/2013/TT- BTC dated November 06, 2013 of the Ministry of Finance guiding Law on Tax Management ("Circular 156")). The taxation authority will base on the declaration to record, adjust the payable tax and issue a tax notice to the taxpayer within 3 working days from the day of receiving such declaration. (Article 18.4.(b) of Circular 156). A transfer of land use rights is not subject to VAT (Article 5.6 of the VAT Law), but a transfer of the warehouse is subject to VAT rate of 10% (Article 8.3 of the VAT Law). Doing Business 2015 Vietnam 45 Time to No. Procedure Cost to complete complete The land-use right transferee shall register the right to use land The Land Use Right Registration Office is the prescribed authority. Currently, there are many land use rights registration offices in Ho Chi Minh City, including the provincial land use rights registration office (immediately under the Department of Natural Resources and According to Environment of Ho Chi Minh City) and district land use rights registration offices (under the people's committee of districts). According to Article Circular 4.1 of Circular No. 20/2010/TT-BTNMT dated October 22, 2010 of the 106/2010/TT-BTC Ministry of Natural Resources and Environment, in order to obtain the dated 26 July 2010 LUR certificate, the transferee may request the LUR Office to issue a new issued by the LUR certificate or an update on the existing LUR certificate. 1. Issuance Ministry of of a new LUR certificate Dossier: According to Article 21.1 of Decree 88 Finance, the cost and Article 23.1 (a), the application dossier for issuance of new LUR for registering the certificate includes: (i) application for issuance of LUR certificate; (ii) a LURC are as copy of the business license; (iii) the sale and purchase contract for the follows: (a) Not 4 Property; (iv) the original LUR certificate and the certificate of ownership 15-30 days over VND100,000 of the warehouse; (v) copies of relevant tax payment receipts; and (vi) a for the issuance of map of the Property (if existing documents on the Property do not have a new LURC; or (b) such a map). Time-limit: 28 working days from the date of receipt of the proper dossier (Article 3.2 of Circular 16). 2. Update on the existing LUR Not over certificate Dossier: According to Article 23.1(a) of Circular 17 and Article VND50,000 for the 6 of Circular 16, the application dossier for update on the existing LUR update/amendme Certificate includes: (i) the sale and purchase contract for the Property; nt to the existing and (ii) the original LUR certificate and the certificate of ownership of the LURC in the event warehouse. Time line: not over 20 working days from the date of receipt of 1 (b) above of the valid dossier (Circular 16/2011/TT-BTNMT,article 3.2(a) dated May occurs 20, 2011). Agency: Land Use Right Registration Office under the Department of Natural Resources and Environment (LUR Office) * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Vietnam 46 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially Depth of credit information index (0–8) 4 movable property, as security to generate capital— while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2015 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Vietnam 47 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Vietnam stands at 36 in the ranking of 189 and bankruptcy laws in Vietnam facilitate access to economies on the ease of getting credit (figure 6.1). The credit? The economy has a score of 6 on the depth of rankings for comparator economies and the regional credit information index and a score of 7 on the strength average ranking provide other useful information for of legal rights index (see the summary of scoring at the assessing how well regulations and institutions in end of this chapter for details). Higher scores indicate Vietnam support lending and borrowing. more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Vietnam and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2015 Vietnam 48 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Vietnam and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Source: Doing Business database. Doing Business 2015 Vietnam 49 GETTING CREDIT When economies strengthen the legal rights of lenders information, they can increase entrepreneurs’ access to and borrowers under collateral and bankruptcy laws, and credit. What credit reforms has Doing Business recorded increase the scope, coverage and accessibility of credit in Vietnam (table 6.1)? Table 6.1 How has Vietnam made getting credit easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Vietnam improved its credit information system by allowing DB2011 borrowers to examine their own credit report and correct errors. Vietnam improved its credit information system through a DB2014 decree setting up a legal framework for the establishment of private credit bureaus. Vietnam improved its credit information system by establishing DB2015 a new credit bureau. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Vietnam 50 GETTING CREDIT What are the details? The getting credit indicators reported here for Vietnam The data on the legal rights of borrowers and lenders are are based on detailed information collected in that gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 7 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable Yes assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of Yes its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically No to the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement Yes include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an electronic database indexed by debtor's Yes name? Does a notice-based collateral registry exist in which all functional equivalents can be No registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor No defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect s ecured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Doing Business 2015 Vietnam 51 Strength of legal rights index (0–12) Index score: 7 Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through Yes public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6 Are data on both firms and individuals distributed? No Yes 1 Are both positive and negative credit data distributed? No Yes 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - No No 0 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on No Yes 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per No Yes 1 capita distributed? By law, do borrowers have the right to access their No No 0 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an No Yes 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No Yes 1 assess the creditworthiness of borrowers? Note: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 40,000 561,452 Number of individuals 830,000 25,973,591 Percent of total 1.4 41.8 Doing Business 2015 Vietnam 52 Source: Doing Business database. Doing Business 2015 Vietnam 53 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions ; Disclosure requirements for related-party transactions What do the indicators cover? Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Vietnam 54 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Vietnam? The economy has a score of 4.7 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Vietnam stands at 117 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Vietnam and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2015 Vietnam 55 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Vietnam in 2014. A summary of scoring for minority investors indicators into context is to see where the protecting minority investors indicators at the end of the economy stands in the distribution of scores across this chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Vietnam 56 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Vietnam 57 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Vietnam 58 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Vietnam 59 PROTECTING MINORITY INVESTORS Economies with the strongest protections of minority result, reforms to strengthen minority investor investors from self-dealing require detailed disclosure protections may move ahead on different fronts—such and define clear duties for directors. They also have well- as through new or amended company laws, securities functioning courts and up-to-date procedural rules that regulations or civil procedure rules. What minority give minority shareholders the means to prove their case investor protection reforms has Doing Business recorded and obtain a judgment within a reasonable time. As a in Vietnam (table 7.1)? Table 7.1 How has Vietnam strengthened minority investor protections—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Vietnam strengthened investor protections by requiring higher DB2012 standards of accountability for company directors. Vietnam strengthened investor protections by introducing DB2014 greater disclosure requirements for publicly held companies in cases of related-party transactions. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Vietnam 60 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Vietnam are based on detailed information shareholder rights, governance structure and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2015 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Vietnam. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Vietnam Answer Score Extent of disclosure index (0-10) 7.0 Which corporate body can provide legally sufficient Board of directors excluding 2 approval for the Buyer-Seller transaction? (0-3) interested members Is disclosure by the interested director to the board of Full disclosure of all material facts 2 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public Disclosure on the transaction only 1 and/or shareholders required? (0-2) Must an external body review the terms of the transaction No 0 before it takes place? (0-1) Extent of director liability index (0-10) 3.0 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1 1) Can shareholders hold the interested director liable for the Liable if negligent 1 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Not liable 0 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 interested indrector? (0-1) Can a court void the transaction upon a successful claim by Only in case of fraud or bad faith 0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 1.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? No 0 (0-1) Can the plaintiff obtain any documents from the defendant No 0 Doing Business 2015 Vietnam 61 and witnesses during trial? (0-3) Can the plaintiff request categories of documents from the No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and No 1 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of No 0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from At the discretion of the court 0 the company? (0-2) Strength of minority investor protection index (0-10) 4.7 Extent of conflict of interest regulation index (0-10) 3.7 Extent of shareholder rights index (0-10.5) 7.0 Can shareholders amend company bylaws or statutes with a No 0 simple majority? Can shareholders owning 10% of the company's share No 0 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of Yes 1.5 directors before the end of their term. Must a company obtain its shareholders’ approval every Yes 1.5 time it issues new shares? Are shareholders automatically granted subscription rights Yes 1.5 on new shares? Must shareholders approve the election and dismissal of the Yes for listed companies 1 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 3.5 Is the CEO barred from also serving as chair of the board of No 0 directors? Must the board of directors include independent board Yes for listed companies 1 members? Must a company have a separate audit committee? No 0 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected No 0 shares? Must a potential acquirer make a tender offer to all Yes 1.5 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its Yes 1.5 parent company? Extent of corporate transparency index (0-9) 6.5 Must ownership stakes representing 10% be disclosed? Yes 1.5 Must information about board members’ other directorships as well as basic information on their primary employment Yes for listed companies 1 be disclosed? Must the compensation of individual managers be No 0 disclosed? Must financial statements contain explanatory notes on significant accounting policies, trends, risks, uncertainties Yes 1.5 and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Doing Business 2015 Vietnam 62 auditor? Must audit reports be disclosed to the public? Yes for listed companies 1 Extent of shareholder governance index (0-10) 5.7 Source: Doing Business database. PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2013 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, sales tax or goods and service tax) Using a case scenario, Doing Business measures the taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paidof by the 5 The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power 0.8. The threshold is defined as and mandatory the total contributions tax rate at the 15th percentilepaid during of the company. overall distribution for all years included in the analysis. It is calculated and adjusted on a the yearly basis. second The thresholdyear of is not operation based are recorded. on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set  range Alower at the end ofstandard of deductions the distribution and of tax rates levied on medium-size  Taxes and mandatory contributions are exemptions enterprises in the manufacturing sector as observed through the paying taxes indicators. are also This reduces recorded. the bias in the indicators toward economies that do not need to levyat measured all levels significant government. ofon taxes companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Vietnam 63 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Vietnam—and how much do firms pay in taxes? frontier and ease of doing business ranking at the end of On average, firms make 32.0 tax payments a year, spend this profile for more details. 872.0 hours a year filing, preparing and paying taxes and Globally, Vietnam stands at 173 in the ranking of 189 pay total taxes amounting to 40.8% of profit (see the economies on the ease of paying taxes (figure 8.1). The summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Vietnam. Figure 8.1 How Vietnam and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2015 Vietnam 64 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Vietnam (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Vietnam made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Vietnam made paying taxes less costly for companies by reducing the corporate income and value added tax rates and DB2010 eliminating the surtax on income from the transfer of land use rights. The government of Vietnam eased paying taxes by reducing DB2011 corporate income tax rate. Vietnam made paying taxes more costly for companies by DB2014 increasing employers' social security contribution rate. Vietnam made paying taxes less costly for companies by DB2015 reducing the corporate income tax rate. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Vietnam 65 PAYING TAXES What are the details? The indicators reported here for Vietnam are based LOCATION OF STANDARDIZED COMPANY on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Ho Chi Minh City chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employer paid - Social gross 12 335 17% 19.2 Security contributions salaries taxable Corporate income tax 5 217 25% 15.7 profit Employer paid - Health gross 0 paid jointly 0 2.5% 3.4 insurance contributions salaries Income tax from transfer of capital 1 0 25% 1.3 land use rights gains Employer paid - gross 0 paid jointly 0 1% 1.1 Unemployment insurance salaries VND Business Licensing Tax 1 0 fixed fee 0.1 1,000,000 value not Value added tax (VAT) 12 320 10% 0 added included included in small Fuel tax 1 0 5% 0 fuel price amount Employee paid - Social gross 0 paid jointly 0 7% 0 withheld Security contributions salaries Employee paid - Health gross 0 paid jointly 0 1.5% 0 withheld insurance contributions salaries Doing Business 2015 Vietnam 66 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Employee paid - gross 0 paid jointly 0 1% 0 withheld Unemployment insurance salaries Totals 32.0 872.0 40.8 Source: Doing Business database. Doing Business 2015 Vietnam 67 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Vietnam 68 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Vietnam? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 5 documents, doing business ranking at the end of this profile for more takes 21.0 days and costs $610.0. Importing the same details. container of goods requires 8 documents, takes 21.0 Globally, Vietnam stands at 75 in the ranking of 189 days and costs $600.0 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Vietnam to export and import goods. Figure 9.1 How Vietnam and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Vietnam 69 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing Business tools to facilitate trade—including single windows, risk- recorded in Vietnam (table 9.1)? based inspections and electronic data interchange Table 9.1 How has Vietnam made trading across borders easier—or not? By Doing Business report year from DB2010 to DB2015 DB year Reform Vietnam reduced the time for exporting and importing by implementing World Trade Organization rules for customs DB2010 administration; increasing competition in the logistics industry also helped reduce delays. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2015 Vietnam 70 TRADING ACROSS BORDERS What are the details? The indicators reported here for Vietnam are based LOCATION OF STANDARDIZED COMPANY on a set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name: Ho Chi Minh City/Saigon port, cover). Information on the required documents and Haiphong the time and cost to complete export and import is collected from local freight forwarders, shipping lines, City: Ho Chi Minh City customs brokers, port officials and banks. The predefined stages, and the associated time and cost, for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Table 9.2 Summary of predefined stages and documents for trading across borders in Vietnam Stages to export Time (days) Cost (US$) Customs clearance and inspections 4 100 Documents preparation 12 160 Inland transportation and handling 2 200 Ports and terminal handling 3 150 Totals 21 610 Stages to import Time (days) Cost (US$) Customs clearance and inspections 4 95 Documents preparation 12 130 Inland transportation and handling 1 200 Ports and terminal handling 4 175 Totals 21 600 Doing Business 2015 Vietnam 71 Documents to export Bill of Lading Commercial invoice Customs export declaration Packing list Technical standard/health certificate Documents to import Bill of Lading Cargo release order Commercial invoice Customs import declaration Inspection report Packing list Technical standard/health certificate Terminal handling receipts Source: Doing Business database. Doing Business 2015 Vietnam 72 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Vietnam 73 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial business cities. See the chapter on distance to frontier dispute through the courts in Vietnam? According to and ease of doing business ranking at the end of this data collected by Doing Business, contract enforcement profile for more details. takes 400.0 days, costs 29.0% of the value of the claim Globally, Vietnam stands at 47 in the ranking of 189 and requires 36.0 procedures (see the summary at the economies on the ease of enforcing contracts (figure end of this chapter for details). Most indicator sets refer 10.1). The rankings for comparator economies and the to a case scenario in the largest business city of an regional average ranking provide other useful economy, except for 11 economies for which the data benchmarks for assessing the efficiency of contract are a population-weighted average of the 2 largest enforcement in Vietnam. Figure 10.1 How Vietnam and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Vietnam 74 ENFORCING CONTRACTS What are the details? The indicators reported here for Vietnam are based COURT NAME on a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on what Claim value: VND 112,541,015 the indicators cover). These procedures, and the time and cost of completing them, are identified through People's Court of Ho Chi study of the codes of civil procedure and other court Court name: Minh City, District Level regulations, as well as through questionnaires Court completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, City: Ho Chi Minh City by judges as well). Table 10.2 Summary of time, cost and procedures for enforcing a contract in Vietnam East Asia & Indicator Vietnam Pacific average Time (days) 400 554 Filing and service 50 Trial and judgment 200 Enforcement of judgment 150 Cost (% of claim) 29.0 48.6 Attorney cost (% of claim) 21.0 Court cost (% of claim) 5.0 Enforcement Cost (% of claim) 3.0 Procedures (number) 36 37 Number of procedures (without bonus points) 37 Specialized commercial courts -1 Total number of procedures (including bonus points) 36 Doing Business 2015 Vietnam 75 No. Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 2 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 3 formal requirements as a matter of law or standard practice. Judge admits summons and complaint: Judge admits summons and complaint (after verifying the formal * requirements). Delivery of summons and complaint to person authorized to perform service of process on Defendant: 4 The judge or a court officer delivers the summons to a summoning office, officer, or authorized person (including Plaintiff), for service of process on Defendant. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. Attempt at physical delivery: An attempt to physically deliver summons and complaint to Defendant is 5 made. Second attempt at physical delivery: If a first attempt is not ordinarily successful, a second attempt to 6 physically deliver the summons and complaint to Defendant is required by law or standard practice. (Check ‘yes’ only if a first attempt at physical delivery is not ordinarily successful) Substituted service: Substituted service is completed by publication in newspapers, by affixing a notice in 7 court or on public bulletin boards, etc. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 8 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 9 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Doing Business 2015 Vietnam 76 No. Procedures Custody of assets attached prior to judgment: If physical attachment is ordered, Defendant's attached 10 assets are placed in the custody or control of an enforcement officer or private bailiff. Report on pre-judgment attachment: Court enforcement officer or private bailiff issues and delivers a 11 report on the attachment of Defendant’s property to the judge. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 12 or defense on the merits of the case (see assumption 4). Framing of issues: Plaintiff and Defendant assist the court in framing issues on which evidence is to be 13 presented. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 14 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 15 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. Summoning of (expert) witnesses: The court summons (expert) witnesses to appear in court for the oral 16 hearing or trial (see assumption 5-a). Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 17 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 18 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 19 Writing of judgment: The judge produces a written copy of the judgment. Registration of judgment: The court office registers the judgment after receiving a written copy of the 20 judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 21 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 22 in favor of Plaintiff (see assumption 6). Doing Business 2015 Vietnam 77 No. Procedures Defendant is formally notified of the judgment: Plaintiff or court formally notifies the Defendant of the 23 judgment. The appeal period starts to run from the day the Defendant is formally notified of the judgment. Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 24 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 25 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 26 judgment. Judge's order for physical enforcement: Judge orders the police to assist with the physical enforcement of 27 the attachment of Defendant's movable assets. Check as “yes” only if the pretrial order of attachment for Defendant’s moveable assets does not ordinarily involve physical seizure of the as Request to Defendant to comply voluntarily with judgment: Plaintiff, a court enforcement officer or a 28 private bailiff requests Defendant to voluntarily comply with the judgment. Identification of Defendant's assets by court official or Defendant for purposes of enforcement: The judge, 29 a court enforcement officer, a private bailiff or the Defendant himself identifies Defendant's movable assets for the purposes of enforcing the judgment through a sale of Defendant’s assets. Creditor notification of intent to attach: A court enforcement officer or private bailiff notifies other 30 creditors of the intent to attach Defendant's goods. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separating 31 assets). Valuation or appraisal of attached movable goods: The court or court-appointed valuation expert 32 evaluates the attached goods. Call for public auction: Judge calls a public auction by, for example, advertising or publication in the 33 newspapers. 34 Sale through public auction: The Defendant’s movable property is sold at public a uction. 35 Judge's decision on bids: Judge determines the adequacy of the bids presented at public auction. Distribution of proceeds: The proceeds of the public auction are distributed to Plaintiff (and, where 36 applicable, to other creditors, according to the rules of priority). 37 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Vietnam 78 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Vietnam 79 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Vietnam characterize the top-performing economies. How scores 3.0 out of 3 points on the commencement of efficient are insolvency proceedings in Vietnam? proceedings index, 4.0 out of 6 points on the According to data collected by Doing Business, resolving management of debtor’s assets index, 2.0 out of 3 points insolvency takes 5.0 years on average and costs 14.5% of on the reorganization proceedings index, and 1.0 out of the debtor’s estate, with the most likely outcome being 4 points on the creditor participation index. Vietnam’s that the company will be sold as piecemeal sale. The total score on the strength of insolvency framework average recovery rate is 18.6 cents on the dollar. Most index is 10.0 out of 16. indicator sets refer to a case scenario in the largest Globally, Vietnam stands at 104 in the ranking of 189 business city of an economy, except for 11 economies for economies on the ease of resolving insolvency (figure which the data are a population-weighted average of the 11.1). The rankings for comparator economies and the 2 largest business cities. See the chapter on distance to regional average ranking provide other useful frontier and ease of doing business ranking at the end of benchmarks for assessing the efficiency of insolvency this profile for more details. proceedings in Vietnam. Figure 11.1 How Vietnam and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Vietnam 80 Source: Doing Business database. Doing Business 2015 Vietnam 81 Figure 11.2 Recovery Rate (0-100) - Vietnam Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Vietnam Source: Doing Business database. Doing Business 2015 Vietnam 82 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Vietnam LABOR MARKET REGULATION What are the details? The data reported here for Vietnam are based on a Employment laws and regulations as well as secondary detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Difficulty of hiring index Data Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) 36 - Art. 22.1 of the Labor Code 2012 Maximum length of fixed-term contracts, including renewals (months) 72 Minimum wage applicable to the worker assumed in the case study 123.02 (US$/month) Ratio of minimum wage to value added per worker 0.60 Source: Doing Business database. Doing Business 2015 Vietnam 84 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Rigidity of hours index Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes increase in workload? Maximum working days per week 6.0 Premium for night work (% of hourly pay) 30% Premium for work on weekly rest day (% of hourly pay) 0% Major restrictions on night work? No Major restrictions on weekly holiday? No Paid annual leave for a worker with 1 year of tenure (in working days) 12.0 Paid annual leave for a worker with 5 years of tenure (in working days) 13.0 Paid annual leave for a worker with 10 years of tenure (in working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 13.0 working days) Source: Doing Business database. Doing Business 2015 Vietnam 85 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 redundant workers; (v) priority rules apply for reemployment. Difficulty of redundancy index Data Maximum length of probationary period (months) 1.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if 1 worker is dismissed? No Third-party approval if 1 worker is dismissed? No Third-party notification if 9 workers are dismissed? Yes Third-party approval if 9 workers are dismissed? Yes Retraining or reassignment obligation before redundancy? Yes Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2015 Vietnam 86 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 and 1/3 weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 0.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 0.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 0.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 0.0 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 8.7 Severance pay for redundancy dismissal for a worker with 5 years of tenure 21.7 Severance pay for redundancy dismissal for a worker with 10 years of tenure 43.3 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 24.6 of tenure) Source: Doing Business database. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of Doing Business also assesses the mechanisms available unemployment protection schemes as well as data on to resolve labor disputes. More specifically, it collects whether employers are legally required to provide data on what courts would be competent to hear labor health insurance for employees with permanent disputes and whether the competent court is contracts. specialized in resolving labor disputes. Social protection schemes and benefits & Labor disputes indicator Data Availability of unemployment protection scheme? Yes Health insurance existing for permanent employees? Yes Availability of courts or court sections specializing in labor disputes? No Source: Doing Business database. Doing Business 2015 Vietnam 87 Doing Business 2015 Vietnam 88 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Vietnam 89 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Vietnam 90 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Vietnam 91 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 10,700 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Vietnam 92